Weak U.S. data a reminder why gold remains in demand

Ole Hansen

Head of Commodity Strategy

Summary:  Gold has been challenged this week following the break below $1485/oz. Weak economic data has however reminded the market why gold has been and most likely will continue to be one of the best performing markets in 2019 and beyond.


Gold has so far responded very well to the challenge it faced on Monday when the price broke below support at $1485/oz. Instead of triggering a cascade of sell orders from speculators holding a record long in COMEX futures the price ‘only’ managed a move down to $1460/oz before finding support. As we highlighted in our latest Weekly Commodity Update the market was looking tired towards the end of last week and in need of a test lower to gauge its strength.

Silver led the way with the sell-off not running out of steam before it reached $17/oz, a 50% retracement of its June go early September rally.

A surprisingly weak U.S. September ISM manufacturing survey that came in well south of 50 was all it took to remind the market why gold has rallied so far during the past few months and why it is likely to continue higher over the coming months.

The PMI survey release of 47.8 vs. 50.0 expected, the lowest since the last recession ten years ago, triggered a run on fresh USD longs while the S&P 500 and bond yields both dropped. Growth dependent commodities such as copper and oil traded lower while gold and to a lesser extent silver – given its industrial metals link – moved higher.

Several weak economic data points from around the world has returned the focus to the ongoing synchronized global slowdown. Adding to this slowdown is a worry that the resumption of trade talks between the U.S. and China later this month will fail to yield a breakthrough.

With economic data in focus the attention now turns to Thursday's U.S. non-manufacturing ISM, the only data that really matters for Q3 GDP as household consumption represents about 70% of the US economy. Therefore clearly a much better gauge to assess the real state of economic activity. The week concludes with the monthly U.S. job report and following these two key data points a weekly close above or below $1485/oz will give a very good idea about where the yellow metal goes next. 

What we have witnessed so far this week, from a technical perspective, has been a weak correction within a strong uptrend. While the first key level of support at $1450/oz was not challenged a quick return above $1485/oz could now attract additional buying from those who had been holding out for a bigger correction.

More on gold, silver and platinum in our Q4 Outlook which can be found on www.analysis.saxo from tomorrow.

Source: Saxo Bank

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

International

Trade responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.